Gurus Gone Wild: Does Zappos' Reorganization Make Any Sense?

The folks at Zappos have done it again. First the online shoe-retailer won global attention for its costly, all-out commitment to customer service. Wild but effective! Now a huge Zappos reorganization is about to turn the company's day-to-day management into a holacracy: a New Age approach to leadership that involves no job titles, no formal bosses, and lots of overlapping work circles instead.

If, like most people, you've never heard of holacracy before, brace yourself. It's the creation of business guru Brian Robertson, who explains his ideas here and here. With 1,500 employees, Zappos is by far the biggest company so far to put these ideas to the test. (Zappos operates as an independent unit of Amazon.com.)

As this early coverage in Quartz and The Washington Post suggests, anytime Zappos and its charismatic founder, Tony Hsieh, think they've found a big new idea, you can bet on lots of attention from strategy consultants, bloggers, business school professors and the like. Put simply, Zappos is everyone's favorite case study when it comes to fresh thinking on leadership, customer service and human resources.

But as any veteran manager knows, it takes a lot of hard work to turn a clever white paper into a real-world business improvement. Supposed benefits sometimes don't work out as planned. Unexpected snags always arise. The best change initiatives deliver what they promise. The worst ones create such chaos that they are abandoned or rolled back within a year or two.

This week, HR consultant William Tincup, writing on the Fistful of Talent blog, took a hard look at holacracy's promise and pitfalls. He came up with six reasons why this radical new version of flat hierarchies and widely shared leadership may run into trouble. Here are some of his key points:

First, Tincup argues that holacracy is designed for happy, growing times -- where empowering front-line employees makes a lot of sense. But what happens when downturns or business crises hit? Someone needs to make tough decisions about layoffs, closures and the like. Holacracy to his eye seems ill-suited for such situations. I've argued similarly in this piece.

Also troubling to Tincup are several concerns relating to company culture, values and diversity. Holacracy may be a good match for companies that load up with rugged individualists who despise authority and like to find their own answers. But not everyone is wired that way, and he worries that for people with different values, holocratic organizations will seem cultish and unwelcoming.

Another big challenge: Can holacracy scale? So far it's been tested mostly on organizations as small as 50 people. Zappos does most of its business in one location (Las Vegas), but if holocracy is going to spread farther, Tincup writes, "will it work in retail in Tampa? Will it thrive at a hospital in Duluth? Light manufacturing in South Texas?" Such challenges would be especially formidable at multinationals operating in starkly different cultures.

Finally, Tincup raises astute questions about career paths in holacratic companies (is there any way to rise?), and the organization's ability to sort out issues with problem employees and underperforming teams. Take away traditional hierarchical tools, and there's the risk that people decisions become infested with secret politics and jostling for popularity, even if such politicking officially doesn't exist.